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Fuel inventory and price relationships in the U.S. electric power sector under regulatory and market change

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Abstract

Long-run relationships among coal inventories at U.S. electric power plants, corporate bond rates and coal, natural gas, and electricity prices are estimated over the period July 1976 to October 2014. Tests for constancy of the long-run relationships show periods of instability which coincide with major regulatory events in the electric power sector. Deregulation of the natural gas and electricity markets are likely sources of instability for the period mid-1994 to mid-2001. Additionally, inventory behavior may have had a smoothing effect over instability caused by natural gas prices during the recent U.S. shale boom. Policy makers should be aware that altering the regulatory environment can result in considerable fluctuations in how firms’ inventory decisions interact with input and output markets and opportunity costs in the long run.

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Source: U.S. EIA (2016)

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Notes

  1. As a robustness check, the empirical analysis was carried out for an alternative measure of coal inventory: current end-of-month coal on hand divided by the following month’s consumption in the previous year, \(\textit{inventory}_t=\frac{\textit{coal\;on\;hand}_t}{\textit{coal\;consumption}_{t-11}}\). The test for parameter stability is robust to this alternative measure.

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Authors and Affiliations

  1. Federal Reserve Bank of Chicago, 230 S. LaSalle St., Chicago, IL, 60604, USA

    Kyle E. Binder

  2. Department of Agricultural Economics, Texas A&M University, 2124 TAMU, College Station, TX, 77843, USA

    James W. Mjelde

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  1. Kyle E. Binder
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Correspondence to Kyle E. Binder.

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Binder, K.E., Mjelde, J.W. Fuel inventory and price relationships in the U.S. electric power sector under regulatory and market change. J Regul Econ 51, 197–219 (2017). https://doi.org/10.1007/s11149-017-9319-9

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